Stock Market to Face ‘Week of Turbulence’

A drastic chill in investor confidence yesterday sent Korea’s benchmark stock market KOSPI spiraling downward again. Before the nosedive, however, the KOSPI had fallen 125.75 points (7.25 percent) from January 21 -23 but later rebounded for three straight days.

The U.S., whose bearish economy has sent shockwaves throughout global stock markets, is expected to announce its employment data for January and an additional rate cut this week. The two factors will determine the direction of world stock markets, which are expected to face high turbulence this week.

○ Tumbling Asian stock markets

The KOSPI fell 65.22 points (3.85 percent) to close at 1,627.19 yesterday. The tech-heavy KOSDAQ also dropped 19.26 points (2.95 percent) to 634.52.

Japan’s benchmark Nikkei 225 tumbled 3.97 percent and the weighted price index of the Taiwan Stock Exchange slipped 3.28 percent.

The main culprit for the slide was jitters in the global market. The Sunday Times reported that around ten European hedge funds have suspended redemption, meaning the funds cannot return money to investors because of lack of capital.

Moreover, the effects of the U.S. economic slowdown have spread to other regions. Goldman Sachs said the Japanese economy seems to have gone into recession or will in the first quarter.

In China, fears of economic losses stemming from the country’s heaviest snowfall in 60 years sent the Shanghai Composite Index down 7.19 percent.

○ U.S. indicators to sway global stock markets

Global investors are thus eagerly awaiting the release of U.S. economic indictors, which are due out soon.

They are especially paying sharp attention to the Federal Reserve Board, which is expected to cut interest rates again tomorrow. Investors have closely watched the Fed since it cut its benchmark rate from 4.25 percent to 3.5 percent last week. Market players say the next cut will be between a quarter and a half percentage point.

Park Jong-hyeon, head of research at Woori Investment & Securities, said, “The Fed’s additional cut will signify the strong U.S. will to boost its economy, thus playing the role of psychological buffer.”

Lee Jong-wu of Kyobo Securities said, however, “The recent global stock market crash shows that a U.S. rate cut is no longer effective in calming down stock market turbulence”

Other highly awaited data are quarterly and annual GDP growth rates that Washington will release tomorrow, and January’s non-farm employment and unemployment rates set for announcement Friday.

As for the won-dollar rate, higher demand for dollars by foreign investors who sold Korean stocks raised the rate 3.3 won to 949.80 yesterday.

ssoo@donga.com